Jobless grads rap Sallie Mae over loan fee

Petition asks lender to drop ‘unemployment penalty’

JeanettePavini

Award-winning broadcast journalist and author Jeanette Pavini writes the Buyer Beware column for MarketWatch and wants to hear your stories, questions, problems and complaints. Write to her at BuyerBewareMKTW@gmail.com.

SAN FRANCISCO (MarketWatch) — For many high-school students, the way out of a tough inner-city school is to drop out. For Stef Gray that wasn’t an option. Instead, at the age of 16, she applied for and was accepted into a program allowing her to start college courses while still finishing high school.

Her goal was to have a career in geographic information systems. During college and grad school, Gray took out loans totalling $40,000 from Sallie Mae
SLM, +2.64%
the company that originates and services student loans. She went to Hunter College in New York and in 2009, she received her master’s degree with honors.

But like many recent graduates, Gray has found it nearly impossible to get a job and is struggling to make ends meet. “It’s excruciating. The job listings these days are full of unpaid internships,” she said. “Aside from unpaid internships and temp gigs … all of the other listings demand seven to 10 years of experience that no new grad has.”

Gray has been forced to defer her loan payments, a process called forbearance. “I want to work at any job I can get and I want to pay off my debt” — a debt that is now close to $65,000.

The interest on her loans adds up to about $1,100 every three months, Gray said, and now she is required to pay Sallie Mae an additional $50 per loan each quarter. This fee, which Sallie Mae calls a “forbearance fee,” and which many students are calling the “unemployment penalty,” costs Gray $150 — $50 for each of three loans. The fee is not applied to the loan balance.

While Sallie Mae instituted the fee in 2006, the opposition to it is now gaining momentum. The fee has Gray — and many others with student loans and no jobs — angry. In November, Gray went to Change.org and started a petition to call on Sallie Mae to suspend the fee.

Her petition now has more than 75,000 supporters. She writes in the petition, in part: “I’m doing everything I can to avoid defaulting on my loans, but Sallie Mae has charged me hundreds of dollars in extra fees because I’ve had to delay my payments. Federal loans allow the unemployed to defer payments without any fees, so the same kindness is not too much to ask from America’s largest private lender.”

A spokesperson for Sallie Mae said in emailed comments that when a customer asks for permission to postpone payments, the company in turn asks for a commitment showing that the customers fully intend to make their payments in the future.

The company said that many people who initially ask to postpone their payments find other solutions because they realize that postponement of payments costs them more in fees and accruing interest. In addition, most loans are cosigned by parents and, said the company, it actively encourages cosigners to help.

But Gray’s parents died when she was a child. So, not only did she not have a parent to cosign, she paid a higher interest rate because there wasn’t any cosigner.

“I knew what I was doing by taking out student loan debt, but I had no idea that the game was rigged,” she said. “I read the fine print on my loans but I had no idea that Sallie Mae had lobbied congress to strip away consumer protections and refinancing rights from private loan debt.”

Sallie Mae also said in emailed comments Monday that the fee was “a good-faith deposit that acknowledges the importance of and commitment to resuming payments in the future.”

“This is nonsense,” Gray responded, “because the forbearance fee is not applied to my debt, and is not returned to me ... It simply goes directly to Sallie Mae as an arbitrary fee for doing what they do for federal loan borrowers free of charge.”

According to the Project on Student Debt, two-thirds of students graduating from college in 2010 had loans, and they had an average of $25,250 in debt. Additionally, they face an unemployment rate of about 9%.

The Consumer Financial Protection Bureau has already raised the issue of growing student debt and its impact on consumers and the economy. The agency has formed a student lending initiative and plans to soon begin asking the public, including the student loan industry, to provide information about the private student loan market.

In the meantime, Gray is continuing her job search and, she said, trying to keep in mind something her mother taught her: “She told me that education would be the way out of poverty and that I should follow my dreams and it would one day pay off.”

Jeanette Pavini is a regular contributor to various publications and Better.TV. She also hosts the weekly TV series, “The Real Deal” on NBC Bay Area and is the national spokeswoman for Coupons.com. Write to her at BuyerBewareMKTW@gmail.com.

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Jeanette
Pavini

Emmy Award-winning broadcast journalist, documentarian and author Jeanette Pavini covers consumer and investigative news for numerous publications, radio and television. Jeanette is based in the San Francisco Bay Area. Follow her on Twitter @jeanettepavini.

Jeanette
Pavini

Emmy Award-winning broadcast journalist, documentarian and author Jeanette Pavini covers consumer and investigative news for numerous publications, radio and television. Jeanette is based in the San Francisco Bay Area. Follow her on Twitter @jeanettepavini.

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